|Argentinian President Cristina Kirchner|
At first, such fiery rhetoric seemed to be little more than frustrated posturing, but it now appears that it provided momentum for Kirchner to pursue controversial policy choices. With strong domestic support, Kirchner has sent a bill to Congress that would result in the nationalization of its largest oil and gas company, YPF. This move is the culmination of a drawn-out political battle between YPF and the Kirchner government, in which each side blamed one another for the decline in Argentina’s energy production. What makes this action additionally problematic is the fact that YPF is a Spanish-owned company, which means that international investors are set to lose substantial funds as a result of nationalization. Because Spain is a large investor and trading partner with Argentina, burning this bridge has caused such an uproar that the Spanish government has threatened to use “clear and forceful measures” to rectify the situation. Moreover, a policy of nationalization further strains Argentina’s relationship with the European Union and the international market in general, by demonstrating continued instability and volatility of its domestic marketplace over a decade after its default on foreign debt in 2001.Although the nationalization of YPF may create a short-term boost in domestic support for Kirchner, there is no guarantee of long-term economic benefits from this policy. In fact, a number of analysts suggest that this move is merely part of a vicious cycle in which political leaders develop irresponsible policies and then attempt to counteract undesirable consequences with and equally extreme counter-policy. Yet, the nationalization of YPF is not only short-sighted domestically, but will likely serve to further isolate Argentina from the international community, both economically and politically. In recent weeks, President Kirchner’s has developed a desire to “stick it” to European states, but burning these bridges may result in a loss of capital and technical expertise necessary to stabilize its economy and expand its ability to extract domestic sources of energy. Therefore, even though Argentina is beginning to act like it belongs to President Bush’s “Axis of Evil”, it should deeply consider the consequences of going rogue before it cuts any more international ties.